Article Courtesy of The
By Gary Mars, Esq.
Published June 23, 2022
The South Florida housing market has been flourishing for the past several
years, and there are no signs the boom will subside any time soon.
Professionals in the finance and technology sectors are relocating here in
huge numbers, and new condominium and single-family home communities have
been enjoying very strong sales throughout the region.
In the near future as many of the area’s new communities approach
completion, they will be undergoing the turnover process by which control of
their operations and management is transferred from their developers to
their home/condo buyers. This is one of the most critical junctures for the
future administrative and financial well-being of all condominium and HOA
communities, and those owners who have made the investment to be the charter
members of their new association should always begin their takeover with the
same vital step: breaking ties with the developers’ board members and
Turnover is when a new community’s unit owners get their opportunity to hire
independent legal counsel, financial professionals, and engineers to conduct
meticulous audits and inspections. A very careful review of all a
community’s rules and business records, as well as the physical state of the
entire property, is very much the order the day. The end goal is to hold the
developer, as well as its contractor, suppliers and design professionals,
accountable for any budget shortfalls and construction deficiencies.
Given the nature of the task at hand, this work should always begin with the
careful vetting of prospective advisor accountants, attorneys and engineers
to ensure only independent and highly qualified professionals are retained
by the new owner-controlled board, which must be expeditiously transitioned
away from any directors and professionals appointed by the developer during
its preceding control of the association, or with any ties to the developer.
The financial, engineering and legal experts retained by the new unit
owner-controlled board of directors will be charged with representing the
interests of all the owners by holding the developer, contractor, suppliers
and design professionals to their warranty and financial obligations. They
should also be tasked with changing any rules regulating community affairs,
collections policies, and construction matters that were in place under the
developer’s regime for its primary benefit.
In light of the monumental significance of this transition, one would be
surprised to learn that many communities choose to maintain the status quo
by continuing on with the professionals and directors who were appointed by
the developer and perhaps continue to serve the developer. They ignore the
obvious conflicts of interest, as the board of directors and its experts
will need to negotiate and settle claims with the developer and others over
matters such as construction defects and financial irregularities. These
settlements typically include general releases from any future claims and
liabilities, so their potential ramifications are immense. 44It is therefore
absolutely essential for independent attorneys, engineers and financial
professionals to be retained by the new owner-controlled boards to help
avoid settling claims for only fractions of their real worth. However, by
continuing on with the developer’s attorneys, accountants and other
professionals as well as its appointed board members, all of whom with
obvious conflicting interests, many new community associations set
themselves and their unit owners very far behind. They wind up missing out
on claims that become time-barred or are legally released under extremely
poor settlements by allowing the interests of the developer to improperly
influence their negotiations.
The newly elected directors have a fiduciary duty to select extremely well
qualified engineers, attorneys and financial professionals with no ties
whatsoever with the developer or contractor. They should also bear in mind
that the longer an association holds off on addressing construction and
financial issues, the easier it becomes for the developer to attempt to
shield itself from liability by disposing assets, shifting blame, and
alleging intervening causes such as a lack of proper maintenance.
The new board should also review all the vendor contracts that the developer
has executed for landscaping, valet parking, security, and other services to
determine whether they were arms-length transactions with fair and highly
competitive terms and provisions.
Considering everything that is at stake during the turnover process and its
immediate aftermath, the unit owners who become involved at this stage will
have the ability to make a very lasting and consequential impact on
protecting their investment and ensuring all developer/contractor
obligations are upheld. They will enjoy the peace of mind that comes with
the knowledge that they did everything they could when it was needed most to
set their community on a course for success.